Money printing hits record high of Rs 3.26 trillion

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 Government of Sri Lanka’s (GoSL’s)face value money printing (FVMP) debt recorded its highest ever figure to date  on Wednesday (14 September), increasing by Rs 18,884.99 million (0.58 per cent) to Rs 3,260,727.41 million (Rs 3.2607 trillion) due to a sustained lack of revenue. GoSL’s previous highest FVMP debt figure was more than two months ago with a value of Rs 3.2502 trillion registered on 8 July 2022.

However, Wednesday’s increase in GoSL’s FVMP debt was non-demand pull inflationary as it was used to settle an ‘essential’ import bill costing US$ 86.16 million (Rs 31,208 million). Conversions are based on the official administered benchmark ‘spot’s’ value of Monday which was Rs 362.20 to the dollar.

Meanwhile, the market was short for a record 251 market days to Wedneday, with this shortfall  increasing  by 2.25 per cent (Rs 12,324 million) to Rs 559,342 million, causing  sustained rate pressure. Further, GoSL’s at least theoretical MP borrowing costs (BCs) decreased for the third consecutive market day to Wednesday despite an increase in its FVMP debt, with MPBCs increasing by 1.42 per cent (Rs 2,243.85 million) to Rs 155,331.99 million on Wednesday   due to buying pressure of riskless Treasury (T) Bills and T Bonds in secondary market trading, with expectations of high yields led by record high inflation.

GoSL’s FVMP debt has been over three trillion rupees for a record consecutive 49 market days to Wednesday. Also, GoSL’s highest to the 254th highest FVMP debt has been recorded in the 254 consecutive market days to Wednesday.

Transactions between Central Bank of Sri Lanka (CBSL) and GoSL are foreign reserves neutral and CBSL which administers daily open market operations; lacks transparency. GoSL’s FVMP debt is equivalent to the totality of CBSL’s T Bill and T Bond holdings. MP is the exclusive right of CBSL.  GoSL’s MPBCs are prorated to the outcome in secondary market trading of T Bills and T Bonds on the reference day.

By Paneetha Ameresekere